What is the Stock Market (And Why That’s a Really Bad Name For It)

The term stock market is a bad name for what it actually is.

If you refer to the supermarket, you’re talking about a specific store where you can go and buy beer, food, beer, household items, beer, etc.

However, when someone talks about the stock market, they’re not referring to one specific market. They’re referring to a bunch of different exchanges that, collectively, are called the stock market.

It’s as if the term supermarket referred to all the places in your country where you could buy groceries.

More Than Just Stocks

At its most basic, the stock market is a place where people can buy and sell stocks. (I say “place” but most of it these days operates virtually.)

Not only does the “market” part of the name not make much sense, the “stock” side of it is misleading too. Because you can trade more than just stocks. You can also trade ETFs, currencies, bonds and commodities.

Stock Market vs Stock Exchange vs Stock Index

A stock exchange is one specific entity or marketplace where people can buy and sell stocks, commodities, bonds, etc. The major stock exchanges in the United States are the New York Stock Exchange, Nasdaq and the Chicago Board Options Exchange.

There are physical locations where stock exchanges operate. However, as previously mentioned, most trading these days gets handled virtually/electronically.

So the stock market is really a collection of all the stock exchanges.

And just to pile onto the confusion, if someone tells you “the stock market is up today”, they are generally not talking about a stock exchange. They are talking about a stock index.

An index averages the share prices of a bucket of stocks. This averaged price is followed closely by many investors who use it as a guide to see what the overall performance of the market is. The major stock indexes in the US are the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite.

Why Do We Even Need a Stock Market?

I’m gonna let you in on a little secret. Especially when it comes to money, there are people who are not exactly honest in this world.

Stock markets and exchanges play an important role in providing a level of regulation and security so that companies and investors can invest with less risk of getting screwed. In exchange for their services, the stock exchanges get a fee for their services. Usually that’s a fee they charge for each transaction made in their exchange.

While certainly big players with lots of money, knowledge, connections, etc. do enjoy some benefits we wee little common investors don’t, the stock market (collection of stock exchanges) does offer a more level playing field where we commoners can haul in some juicy profits… if you know what you’re doing!